The ichimoku cloud is a trend-following technical indicator that takes into account multiple variables to generate applicable trading signals. Mastering the indicator can take years, but with practice it can turn into one of the most powerful tools in your arsenal. It can identify trend direction, gauge momentum and identify key support and resistance levels. It can also help traders to identify buy and sell opportunities. The indicator can be used on various timeframes, depending on your style of trading. Day traders can use it on shorter timeframes (between a 1-minute chart and a 6-hour chart), while long-term traders can apply it to weekly or daily charts.
The Ichimoku cloud is a set of lines that span across the top and bottom of the chart. The space in between is typically shaded green or red. The two outermost lines, called the Conversion line and the Base line, function as a support and resistance respectively. When the price is above these two lines, it indicates bullish momentum. When it is below these lines, it indicates bearish momentum.
Another key feature of the Ichimoku cloud is the Chikou Span, which is a lagging span that tracks the closing price for 30 periods back in time. This is a unique aspect of the Ichimoku cloud, as it is not found in other indicators, such as moving averages. The Chikou Span is traditionally colored light green and it can provide buy or sell signals. It can also indicate a change in momentum, such as when it crosses from bottom to top.
The final component of the Ichimoku cloud is the Kumo, which is formed by the area between Senkou span A and Senkou span B. The Kumo is a crucial element because it identifies present and future support and resistance levels. The color of the Kumo reflects the current trend. If the price is above the Kumo, it is in an uptrend, and if it is below the Kumo, it is in a downtrend. The Kumo can also act as a dynamic support and resistance level, and traders can use it to find entry and exit points.
